Saturday, December 03, 2011

Oh, What a Web of Fantasy Modern Economists Weave

I was sent this clip by a reader of Lost Legacy a few days ago.** It speaks for itself, but follow the link for the full story. HERE

"...GlaxoSmithKline and other pharma giants to produce enough expensive vaccines for children who need them most but can afford them least? The answer, Gates increasingly believed, lay in making Adam Smith’s invisible hand more visible, giving the newly formed market a benevolent shove in the direction of free enterprise."

CommentWhat exactly is meant by “making Adam Smith’s invisible hand more visible” is not stated. Forbes assumes readers know what it means. If someone can make ‘more visible’ which, by repetition is ‘invisible’. Readers of Adam Smith and Lost Legacy will - or should - know it is a simple metaphor, much used in the 17th and 18th centuries before Adam Smith used it.

Smith used it to represent metaphorically something else, which he identified in the first case (Moral Sentments) as the unintentional behaviour of ‘rich and unfeeling landlords’, who, in feeding their dependent slaves, servants, and serfs, unintentionally assured the procreation (a public good) and the continuation of the species, and crucially their own continuation (no food for serfs; no labour from serfs), and in the second case (Wealth Of Nations), the IH metaphorically represented the behaviour of some, but not all merchants, who, concerned for the security of their capital if they sent it abroad, preferred to invest in “domestick industry” instead, thus unintentionally adding to “domestic investment and employment”, which benefitted the public, especially the poor.

Only modern economists converted this well known and clear metaphor into a general and actual noun for something believed to be ‘real’ and applied it to markets, supply and demand, prices, and almost everything else in economics (and well beyond into fantasy land – see the Looney Tunes series on Lost Legacy).

So what Forbes meant – and allegedly Gates too – is that this shared fantasy, attributed crassly to Adam Smith since the 1940s, following Paul Samuelson, exists almost with religious devotion (the ‘hand of God’, etc.,) and even turns selfish actions into public benefits. Though as the broader implications for such non-Smithian notions began to strike home, even Samuelson, responsible single-handedly almost, for the spread of the nonsense, began to backtrack slightly and imperceptibly in later editions of his phenomenally successful 1948-2010 textbook, Economics: an introductory analysis, by declaring that an invisible hand could only work in perfectly competitive conditions, and not in the mixed economy of modern capitalism.

Unfortunately, Forbes and Bill Gates, and most modern economists haven’t yet realized this truth, which Samuelson belatedly realized, and which Adam Smith, bless him, had never said anything at all to lead anyone to think that he had, 335 years earlier.

[** Lost Legacy welcomes readers' clips and leads and always tries to use them - anonymously, should you require; with acknowledgments by name as requested.]